Climate Finance: A Few Fundamentals for 2013

Developed countries have provided finance to help developing countries respond to climate change through many different channels, including dedicated multilateral climate funds. The UNFCCC COP in Warsaw this week, it is hoped, will focus political attention on climate finance. A High-level Ministerial Dialogue, chaired by the Ugandan Minister of Finance and the Danish Minister of Climate Energy and Buildings, will take stock of the efforts taken to scale up climate finance in the last year and to provide a strategy on how to make further progress.

In advance of these important meetings, ODI and the Heinrich Böll Foundation North America have released our annual series of Climate Finance Fundamentals (CFFs). The CFFs analyse major trends that emerge from our efforts to monitor finance spent through these funds on Climate Funds Update.

USD 356 million has been pledged and USD 749 million deposited to these funds since last year. The largest contributors to these funds were the UK, US, Germany and Japan. Between October 2012 and September 2013, USD 431 million was approved for new projects and USD 429 million disbursed to support 157 projects, a 23% increase from the number of projects approved the previous year.

Approved mitigation finance has increased by 29%. The Clean Technology Fund is the biggest player in mitigation finance, tending to concentrate on large-scale programs in a small number of emerging economies. It approved a total of USD 2.2 billion (only including projects approved by both the Trust Fund Committees and the implementing Multilateral Development Banks). Almost 90% of total mitigation finance is concentrated in just twenty countries. Some of the largest mitigation projects are concentrating solar programs in the Middle East and North Africa (Egypt and Morocco), and in Asia. Only USD 120 million was approved for new projects in Asia, which represents a substantial decrease relative to past years.

Approved funding for adaptation increased by 34%. Overall, although it still receives only 21% of total approved climate finance targets adaptation as a whole. The Adaptation Fund and the Special Climate Change Fund registered the highest increase of approved finance in the last year. 40% of the USD 93 million approved for projects in Sub-Saharan Africa focused on adaptation.

Reducing emissions from deforestation and forest degradation (REDD+) focused funds have been relatively static over the last 12 months, with only USD 34 million in new pledges. USD 100 million was approved for new projects. Norway remains the largest contributor of REDD+ finance. However, the future of programs such as Australia’s Forest Carbon Initiative is highly uncertain. USD 556 million in REDD+ finance was directed to Latin America, with much of it going to Brazil. While relatively few new projects appear to have been approved in the region, disbursement appears to have increased by at least 43%, suggesting that program implementation is advancing.

The newest actor in this complex and evolving architecture is the Green Climate Fund (GCF), established by the UNFCCC COP with an independent secretariat that is about to move to Song Do, Korea. Hopes are high that the GCF will be operational by the end of 2014, but progress has been slow, as a number of key issues still remain to be resolved by the 24-member Board.

Progress continues to be made in incorporating gender considerations into fund programming. In 2013 the Climate Investment Funds (CIF) recruited a gender specialist, and the Global Environment Facility (GEF) made progress in implementing its gender policy. The GCF has the opportunity to be the first climate fund to emphasise gender dimensions of climate change from the outset.

Finally, while the transparency of climate finance has been improving, there is a continued need for more complete and comparable reporting by funds. The commitments that the GEF, CIF and Adaptation Fund made to adopt the International Aid Transparency Initiative standards this year may be a step in the right direction. There is a particular need for information on the amount of finance that has been disbursed to recipients in developing countries. Better information will allow us to better understand the likely impacts and effectiveness of increasingly established climate funds.

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